Ordinarily, the slowdown in global growth would have caused most central banks to accelerate interest rate cuts. Instead, the number of central banks cutting rates has slowed significantly over the past six months. For example, since the beginning of this year an average of 11 central banks have cut rates each month, compared with an average of 19 banks a month in the previous six months. This moderation in the pace of monetary policy easing is due to a combination of factors, including some upward drift in global inflation, a concern that higher import tariffs could fuel additional price increases, and a more cautious approach by central banks to changes in monetary policy, given the increased uncertainty associated with President Trump’s tariff policy. Fortunately, some economies were able to reduce interest rates appreciably in 2024, which should provide greater monetary policy flexibility during the remainder of 2025.

US economy forecast to grow at its slowest pace since the Covid pandemic

On 2 April 2025 President Trump announced that “reciprocal” import tariffs would be imposed on around 186 countries. While most of these countries were handed a 10% tariff, more than 45 countries, including SA, attracted tariffs greater than 20%. Initially the tariffs were scheduled to be implemented on 9 April, but this was postponed for 90 days to allow for “negotiated trade deals”. At the time the Trump administration spoke about doing “90 deals in 90 days”.

On 7 July Trump announced that the implementation of the “reciprocal” tariffs would be further delayed until 1 August 2025, but sent “letters” to over 20 countries, including SA, outlining the tariff that would apply to them on 1 August unless they concluded a more favourable trade deal with the US.

In the year to date the Trump administration has concluded “trade deals” with Canada, Mexico, UK, Vietnam and China. Importantly, the “trade deal” with China is effectively a temporary (90 day) de-escalation of the trade war between the US and China.

Assuming that all the currently announced reciprocal tariffs are implemented on 1 August (including specific sectoral tariff on vehicles and steel as well as a recently announced 50% commodity tariff on copper), the US’s effective import tariff will increase from less than 3% in 2024 to an extremely high 18%. If sustained, this will have significant implications for the US economy, both in slowing economic activity and increasing inflation, thereby creating an element of stagflation.

In the first quarter of 2025, US GDP declined by 0.5% quarter-on-quarter (annualised), mainly due to a massive 51.6% quarter-on-quarter increase in imports. Understandably, the increase in imports was largely driven by companies increasing inventories ahead of the scheduled tariff hikes.

Encouragingly, the Q1 2025 decline in US economic activity, as well as the increased trade policy uncertainty, has not yet had a meaningful impact on the US labour market, with the rate of unemployment improving to 4.1% in June 2025, although there is increasing evidence to suggest that companies have become more reluctant to increase employment. This is partly reflected in the fact that the US private sector added only 74 000 jobs in June, which was well below the six-month average gain of 142 000 jobs.

In early July, the US Congress approved Trump’s One Big Beautiful Bill Act (OBBBA). The OBBBA contains a very large package of tax and spending measures, which in aggregate will cost the US government around $3.3 trillion over the next decade, excluding interest costs. (These estimates are provided by the Congressional Budget Office.) In effect, the legislation will extend the expiring personal tax cut provisions passed during the first Trump administration in 2017, while adding additional tax reductions for households and businesses. This suggests that the OBBBA should provide some stimulus to economic growth in 2026, but at a significant to the government.

US inflation was last measured at 2.4% y/y in May 2025, while core inflation remains slightly more elevated at 2.8% y/y. However, the risks are obviously to the upside, given President Trump’s recent increases in US import tariffs. Unfortunately, the unknown inflationary impact of the recent increase in US import tariffs as well as the fiscal stimulus impact of the “Big Beautiful Bill” later this year and into next year has contributed to the Federal Reserve (Fed) keeping interest rates on hold in recent months. The Fed has signalled that it is in no hurry to cut interest rates further. It has adopted a “wait-and-see” approach to any further changes in monetary policy but has acknowledged that there remains a downside bias to US interest rates.

Eurozone economy remains under pressure despite showing some resilience so far this year

The Eurozone economy had a strong start to the year, with GDP growing by 0.6% quarter-on-quarter in the first quarter of 2025, following a 0.3% expansion the previous quarter. This is the fastest growth rate in over two years. Germany’s economy rebounded (+0.4%) and Ireland’s GDP surged (+9.7%) amid a strong rise in exports as producers front-loaded shipments ahead of potential US tariffs on the region.

High-frequency economic indicators suggest that there is some stabilisation in economic activity, although growth momentum remains erratic. While the region’s manufacturing PMI remained in contraction, it rose to its highest level since August 2022, signalling only a marginal downturn in manufacturing conditions. The services PMI returned to expansionary territory after a brief contraction in May as business confidence among service providers improved.

The region’s near-term outlook will depend on the outcome of trade negotiations between Europe and the US. Positively, Germany’s planned fiscal spending on infrastructure and defence could potentially offset some of the impact of tariffs for the manufacturing sector, with positive spillovers for the region starting next year. Should tariff rates be reasonable at around 10% to 15%, Eurozone GDP could grow by as much as 1% in 2025, before rising to 1.1% in 2026.

Eurozone inflation was slightly higher in June, rising to the European Central Bank’s (ECB) target of 2% year-on-year, from 1.9% in May. Importantly, services inflation also edged up to 3.3%, as the sector’s inflation abates slowly. While higher tariffs and increased fiscal spending could place upward pressure on inflation in the Eurozone, the appreciation of the euro and a gradual cooling of services inflation should offset these risks, preventing any real build-up in price pressures.

Given the well-contained inflation, the ECB lowered its benchmark interest rate for the eighth time since it started its easing cycle a year ago. The decision to cut rates by 25 bps brought the refinancing rate down to 2.15% in June, amid expectations of weaker growth and lower inflation in the region this year. Even though the ECB did not commit to a particular rate path, ECB president Christine Lagarde said that the central bank was getting to the end of its rate-cutting cycle.

Increased government support to partially offset impact of trade war on Chinese economic growth

China’s GDP grew by a solid 1.2% quarter-on-quarter in the first quarter of 2025, slower than last quarter’s expansion of 1.6%. The growth was driven by significant infrastructure spending from strong fiscal support; export front-loading to avoid tariffs; and as sales of consumer goods benefit from government subsidies.

While the upbeat trade negotiations and a truce between the US and China has eased tensions since April, uncertainty remains and is likely to weigh on Chinese activity going forward. Recent high-frequency data shows that activity has recovered from the shock of “reciprocal” tariffs and subsequent retaliatory actions between the two nations. In particular, the decline in China’s official manufacturing PMI eased in June as the ceasefire supported Chinese production.

Importantly, hard data paint a mixed picture. For one, Chinese exports moderated in May as strong demand from other regions could not fully offset the drop in shipments to the US. In addition, industrial production recorded a mild slowdown in May due to the impact of US tariffs. In contrast, retail sales surged in May, driven by government’s goods trade-in programme and early start of 618 shopping festival. Overall activity, however, remains below trend amid ongoing weak consumer confidence.

The 90-day tariff truce between China and US improved Chinese activity and is likely to continue to help the momentum in activity in the very short term as manufacturers capitalise on it by front-loading shipments. The medium-term outlook, however, remains uncertain and generally subdued, given weak confidence levels and uncertainty around the future of export activity.

It is therefore vital for Chinese authorities to continue to fast-track the roll-out of stimulus measures, not only to provide a powerful signal to markets but also to stimulate domestic demand. Additional fiscal expansion could also be introduced, with a focus on lifting domestic consumption, supporting exporters, and stabilising the capital markets.

Unfortunately, even if additional measures are introduced, they are unlikely to fully offset the external shocks and systemically weak confidence levels. This reduces the likelihood that China will meet its GDP growth target of “around 5%” in 2025. In fact, the economy is likely to grow by 4.5% in 2025, before moderating to 4.1% in 2026.

China’s economy continues to face a deflationary battle, reflecting ongoing weakness in domestic demand conditions, which remain imbedded even with government’s efforts to boost consumption activity. While headline consumer prices swung back to inflation in June, with growth coming in at 0.1% year-on-year, on a monthly basis, prices fell for a second month and deflation in producer prices intensified. While core inflation continued to improve in June, it is still well below the pre-pandemic norm of 1.5%.

In May, the People’s Bank of China (PBoC) announced multiple monetary support measures, showing that government is stepping up easing. It confirms the urgency needed to support the Chinese economy. The measures included a 50-bps cut to the RMB required reserve ratio and a 10-bps cut to the one-year loan prime rate. Further policy cuts are expected this year, including additional cuts to the RRR and cuts to the Medium-term Lending Facility rate.

The stimulus measures are expected to boost banks’ lending capacity to support economic activity. In addition, by adding more liquidity into the financial system, the government probably wants to provide enough funds to facilitate the front-loading of existing fiscal stimulus and the introduction of additional support in the second half of the year. Even so, the stimulus measures are likely to be reactive in nature and remain largely supply-centric, limiting the overall positive impact on economic growth.

South African economic growth remains disappointingly weak

In the first quarter of 2025, the South African economy grew by a very modest 0.1% quarter-on-quarter. This compares with a revised increase of 0.4% in the final quarter of 2024. Over the past year the economy expanded by 0.8%, while the GDP performance for 2024 was revised down from 0.6% to 0.5%. An important reference in evaluating the growth rate is population growth. According to the most recent population estimate released by Statistics SA, the country’s population is currently growing by around 1.4% a year, which suggests that the GDP performance has to at least exceed 1.4% in order to be encouraging. Ideally, it needs to be in excess of 3% a year on a sustained basis to start to make a difference to lifestyles and investment opportunities.  

It seems clear that SA’s persistently weak level of business and consumer confidence, coupled with a breakdown of key infrastructure, a high level of import intensity, and a general lack of fixed investment spending has undermined the country’s growth performance. As we have highlighted on numerous occasions, if SA’s growth initiative can start to make greater use of public/private partnerships to support infrastructural investment and boost the deregulation of the business sector (including a renewal of municipal service delivery), we would expect growth to start to improve more meaningfully.

In May 2025, the headline inflation rate remained unchanged at 2.8%. Over the past eight months inflation has remained in a narrow range of 2.7% to 3.2%. Ordinarily this would encourage the Reserve Bank to cut interest rates further. However, the possible reduction of the inflation target to 3%, together with uncertainty associated with recent geopolitical events and the vagaries of Trump’s tariff policies, are likely to encourage the Reserve Bank to maintain a cautious approach to any further changes in monetary policy. Consequently, we expect the Reserve Bank will cut rates only once more in the second half of 2025, and by a modest 25 bps, taking the repo rate down to 7%.

Finally, it is worth highlighting that in recent months domestic inflation has benefited from a convergence of numerous positive factors that are not all likely to persist. These include a year-on-year decline in the fuel price, subdued food inflation, a reasonably strong currency, China exporting deflation, and a weak housing market, which has kept rental inflation below 3%. Consequently, we expect inflation to move back to around 4.5% over the next 12 months as some of these factors become less supportive. This is still a good outcome when measured against the 4.5% midpoint of the inflation target, but it is not necessarily all that welcome in the context of the Reserve Bank’s quest to anchor the inflation rate at around 3%.

Our weekly podcast by Kevin Lings

Good news on US and SA inflation trends

In this podcast, STANLIB’s Chief Economist, Kevin Lings, looks at US September CPI, which went up less than expected, to 3% from 2.9%. He analyses why it is showing only a modest impact from tariffs, and how it will influence US interest rates. In SA, September CPI went up to 3.4% from 3.3%, but Kevin expects it will move higher in coming months. To listen to the podcast, click here.

The focus areas during the week included

• The S&P 500 index rose by 1.9% and ended the week at another record high. Year-to-date it is up 15.5%. Since the low on 8 April 2025, the US equity market has gained 36.3%. The latest weekly uplift in US equities occurred despite an increase in the oil price after the Trump administration announced sanctions against Russia’s two largest oil companies. The market welcomed US inflation data for September (released on Friday), which appears to have assured a further interest rate cut of 25 bps on Wednesday 29 October. There is also a huge focus (and nervousness) about upcoming trade negotiations between the US and China on 30 October.

• Japan’s stock markets rose sharply, with the Nikkei 225 Index gaining 3.6% and the broader TOPIX Index up 3.1%. Markets welcomed the election of the Liberal Democratic Party’s (LDP) Sanae Takaichi as Japan’s prime minister, as her focus on the economy and proactive fiscal policy are likely to be positive for equity markets. Given that the LDP formed a coalition with the Japan Innovation Party (JIP), Takaichi’s government can be expected to be relatively stable. Although the LDP-JIP coalition is slightly short of a majority in both the Lower and Upper Houses, it can obtain support on a bill-by-bill basis from small, neutral opposition parties.

• Although the STOXX Europe 600 index ended the week up 1.7%, SA’s All-Share Index declined by 0.3%, hurt by a fall-off in the Resource and the Financials indices. Despite the weekly decline in SA equities, the JSE is still up a very impressive 31.3% year-to-date, mostly due to the Resource 10 Index.

• The US bond market fluctuated throughout the week, with yields trending lower in the first half of the week (the yield on the US 10-year government bond fell to 3.97% on Wednesday) before drifting higher ahead of the release of monthly inflation data on Friday. The net result was that the yield on the 10-year ended the week unchanged at 4.02%.

• In the year to date, the rand has gained an impressive 9% against the US dollar, helping it to marginally outperform its emerging market peers (up 7.8% in aggregate). This appears to be due to positive SA-specific effects, including SA’s favourable terms of trade.

• The ongoing US government shutdown, which has been in effect for the past 27 days (the second-longest in history) has substantially disrupted the release of key US economic data. Since 1 October, at least 23 major economic data releases have been delayed. However, the Bureau of Labor Statistics released the September consumer inflation data on Friday, 24 October, more than a week after its scheduled publication date, to allow the Social Security Administration to calculate its annual cost-of-living adjustment. The US Senate has voted 12 times to try to resolve the shutdown, but none of the attempts got close to achieving the 60 votes needed to end it. The current betting reflects a 69% chance of the shutdown lasting more than 40 days and a 57% chance of it taking more than 45 days to resolve. In the week, a separate Republican-backed bill (Shutdown Fairness Act) to pay federal employees and contractors who continue working during the shutdown also failed to attract the required number of votes. The pressure to resolve the shutdown will increase significantly next week, given that most Federal employees are scheduled to be paid by month-end. Approximately 670 000 federal employees are furloughed, while around 730 000 other government employees deemed essential, such as air traffic controllers, transportation security, medical staff etc, are working without pay. These estimates exclude military/law enforcement personnel, who also continue to work.

• President Trump announced that negotiations with Canada are terminated, in response to a commercial critical of tariffs aired by the government of Ontario. Ontario Premier Doug Ford said the province would pause the ads, which featured former President Ronald Reagan.

• In September 2025, US consumer inflation rose by 0.3% m/m, below market expectations for an increase of 0.4%. This pushed the annual rate of inflation up from 2.9% to 3%, which was also below expectations for an increase of 3.1%. Core consumer inflation increased by a more modest 0.2% m/m and by 3% y/y. While core inflation has slowed from 3.3% at the start of 2025 it is, obviously, not in sight of the US Federal Reserve’s (Fed) inflation target and is likely to remain elevated in the coming months – partly because of the higher import tariffs. A breakdown of the US CPI data for September reveals that a range of categories recorded relatively modest monthly increases, including food (+0.2% m/m), used cars (-0.4% m/m), shelter (+0.2% m/m) and motor vehicle insurance (-0.4% m/m). These relatively subdued increases were partially offset by large increases in the price of clothing (+0.7% m/m), gasoline (+4.1% m/m), furniture (+0.9% m/m), appliances (+0.8% m/m), audio equipment (+0.8% m/m), sporting goods (1% m/m), sewing machines (+1.1% m/m), and stationery (+2.1% m/m). Many of the categories of consumer spending that recorded relatively large monthly increase were probably impacted by the higher tariffs, but (in total) represent a relatively small portion of the CPI basket. While US headline inflation has trended higher since April 2025, the impact of higher import tariffs has been far less noticeable than initially envisaged. This could be due to companies looking for alternatives ways to cope with the higher import charges, including a reduction in costs elsewhere in the business, such as the number of people employed. Given that the latest inflation data was below market expectations, a rate cut of 25 bps on 29 October appears assured.

• A Biden-era proposal in 2023 pencilled in a large increase in capital holdings for the US’s largest banks. However, this proposal was moderated last year and now the Federal Reserve Bank has shared a plan to deliver an even smaller increase in bank capital holdings. Increasing bank capital can help to protect financial institutions against losses on their lending, but it comes at a potential cost to profitability, and in some cases, their ability to expand lending. The latest plan to moderate the proposed increase in capital could potentially contribute to stronger credit growth in the US economy over the next few years and is consistent with the recent push towards looser regulation by the Trump administration. It is possible that Trump’s deregulatory agenda, which has been less of a focus than it was in his pre-election promises, especially against the backdrop of the large increases in tariffs, could become more central to the US economy and markets in 2026.

• The initial estimate of the US purchasing managers’ indexes (PMIs) for October 2025, which is compiled by S&P Global, suggested that business activity strengthened in the month. The composite PMI, which includes manufacturing and services, increased to 54.8 from 53.9 in September, marking the 33rd consecutive monthly reading above 50. Again, the services sector was the main area of strength, with the latest PMI reading recording a three-month high of 55.2, as new orders more than offset a drop in exports. The manufacturing PMI also rose, to 52.2 from 52, signalling an improvement in business conditions. However, optimism among manufacturers fell to its second-lowest level since June 2024, reflecting concerns about tariffs and policy uncertainty.

• In September 2025, SA’s headline CPI inflation increased by a modest 0.2% month-on-month, which was in line with market expectations. This pushed the annual rate of inflation up from 3.3% to 3.4%. From October 2024 to September 2025, SA’s headline inflation rate has mostly remained relatively subdued and in a narrow range of 2.7% to 3.3%, but it is expected to drift higher in the next 12 months. The monthly increase in headline CPI of 0.2% was driven by two factors, namely an increase in the rental cost of residential property and a large increase in the cost of accommodation services. Other notable price increases included a substantial increase in the price of package holidays. In contrast, food prices declined for the second consecutive month, after rising more than expected between April 2025 and July 2025. The latest inflation data should further encourage the Reserve Bank to consider cutting rates by a further 25 bps before the end of the year – despite its 3% inflation goal. A cut of 25 bps would not be in complete conflict with the recent downward revision to the Reserve Bank’s inflation objective of a sustained 3%. This is because SA’s inflation expectations have recently declined further, while any downside surprise in the actual rate of inflation keeps the level of real interest rates relatively high – and probably unnecessarily high.

• SA was placed under Increased Monitoring (grey listed) by the Financial Action Task Force (FATF) in February 2023. However, after 33 months on the list, the FATF announced on Friday that SA was no longer on the grey list. Initially SA was placed on the grey list because of deficiencies in its anti-money laundering and counter-financing of terrorism systems, which included insufficient enforcement of the laws. In June 2025, the FATF announced that SA had substantially completed all 22 action items in its action plan, paving the way for its removal from the list. The FATF also said that Burkina Faso, Mozambique, and Nigeria had substantially completed their Action Plans. Consequently, they were also removed from the grey list. At this stage, there are 20 countries still on the grey list. Although it took SA 33 months to exit the grey list, this is not unusual. For example, Tanzania was grey listed in October 2022 and removed from the list in June 2025, which is also 33 months. Nigeria spent only 25 months on the list, while Mozambique was on the list for 37 months. It took Burkina Faso 57 months to exit.

• China’s economy grew by 4.8% y/y in the third quarter of 2025, down from 5.2% y/y in the second quarter. Growth was hurt by relatively subdued expansion in household consumption as well as fixed investment. Despite the slowdown in Q3 2025, the economy should achieve the official growth goal of around 5% this year. The growth rate for Q3 2025 was, however, above market expectations for a deceleration to 4.7% y/y (Bloomberg). Given the high likelihood of China reaching its 5% growth target, it is unlikely that the government will introduce additional meaningful stimulus measures this year. Focus is likely to be on implementation and setting up the foundation for better government investment in 2026.

• Other economic data released by the Chinese authorities last week highlighted that there are several pockets of weakness in China’s economy. For example, retail sales grew by 3% y/y in September, hurt by a slower disbursement of funds for the government’s consumption trade-in programme. This is the slowest annual rate of growth in retail sales since November 2024. Fixed asset investment unexpectedly fell by 0.5% y/y in the first nine months of the year. In contrast, industrial output rose by a better-than-expected 6.5% y/y, driven by the export sector.

• On the policy front, China said it aims to “greatly increase” the country’s capacity for self-reliance and strength in science and technology in the next five years. It also vowed to maintain manufacturing’s share of the economy at a “reasonable” level as it builds a modern industrial system. These statements were contained in a communique released at the end of China’s fourth plenum, a four-day conclave of top Communist Party officials to review and approve the main themes of the 15th Five-Year Plan, a blueprint for China’s economic and social development goals from 2026 to 2030.

• The October PMI for the Eurozone showed that business activity hit a 17-month high, supported by the strongest increase in new orders in two-and-a-half years. The Composite PMI Output Index was recorded at 52.2 in October from 51.2 in September and ahead of consensus estimates for around 51.1. The services PMI climbed to a 14-month high of 52.6, while the gauge for manufacturing rose for an eighth consecutive month, to 50 from 49.8. Interestingly, while Germany recorded a solid increase in output, business activity in France fell for the 14th consecutive month, and at the fastest pace since February 2025.

• Consumer confidence in the Eurozone rose to -14.2 in October 2025, up from -14.9 in September. This is the highest level of consumer confidence in the region in the past eight months (data is provided by the European Commission). The result also beat market expectations for a decline to -15.

• The inflation rate in Japan remained above the Bank of Japan’s 2% target, with the nationwide core consumer price index (CPI) rising to 2.9% y/y in September, in line with market expectations, but up from the prior month’s reading of 2.7%. Energy and food prices drove most of the increase.

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In a conversation with STANLIB’s Chief Economist, Kevin Lings, Holley said Traxtion was eager to invest in SA’s freight rail and has been engaging with Transnet and the South African government for several years to find ways to implement public-private partnerships.

Traxtion, which is 37 years old, operates and leases a fleet of wagons and locomotives in nine African countries in Africa. It pays most of those governments a fee for third-party access on their rail networks. The company services its fleet at a workshop in Rosslyn, Pretoria, has held a rail safety permit in SA for 20 years and runs a government-certified rail training centre which has trained more than 700 drivers and produced at least 55 Diesel Electrical Fitter Artisans.

To illustrate the scale of the opportunity in SA’s freight rail, Holley said Traxtion transports copper and related products in and out of the Democratic Republic of Congo and Zambia to various ports, representing 8-9 million tons (Mt) a year total potential freight market. South Africa has a current rail freight demand shortfall of approximately 90 million tons (Mt) a year. “The freight opportunity in SA is larger by multiples than anywhere else in the region,” he said.

The prerequisites for private sector investment

Lings asked Holley what he needed before he would commit billions of rands of investment to SA.

Holley said Traxtion was highly encouraged by the efforts of SA’s Department of Transport to structure rail reform in a way that makes economic sense and enables third parties to invest sustainably. This has been enabled by the Cabinet approving a rail policy that sets a clear direction for rail reform.

On October 1, 2024, Transnet was separated into two operating divisions, Transnet Infrastructure Manager (TRIM), responsible for the network; and TFR, the operations company using the network. TRIM has been established as a separate company within Transnet, with a mandate to provide access on the same terms to both the TFR Operating Company and private operators.

Critically, Holley said, the department has established an independent regulator to ensure that rail policy is applied fairly. On December 19 last year, there was another significant breakthrough when the Network Statement was released, establishing that, from April 1, 2025, SA’s rail monopoly will be over.

Unfortunately, there are still issues to resolve in the Network Statement, Holley said.

Initially, it permitted private operators only five slots a week. To put this into context, the Johannesburg-Durban line has the design capacity to run 144 trains a day or 1008 a week. In the latest version of the Network Statement, government concedes that, as the total 21 000km network has about 200 Mt/year of capacity (in the current state), of which TFR is only using about 156 Mt/year, there is spare capacity. But it still does not provide the service level protections required for investment in new train capacity to be unlocked.

Holley said private rail operators are dependent on long-term debt to make capital investments, but debt is relatively accessible because rail assets have a long life and maintain their value. The two most important considerations for lenders are the strength of agreements with customers and the rail access agreement. The current Network Statement does not require TRIM to make any service level commitments at all. This means private operators have no viable base case to prepare business cases and absolutely nothing to hold the TRIM to account for poor service level provision.

“For the last three-and-a-half years we have been developing various investment cases with our potential customers,” Holley said. “We believe there are sectors where despite the poor track network condition, if trains run to the tempo TFR Operating Company is running now the business case will work, but we would be foolish to invest until we have a rail access agreement that gives us protection.”

Infrastructure remains a concern

Holley said he was extremely worried about the current state of Transnet’s infrastructure and operations, and a turnaround will be difficult to achieve.

“Any business that cannot maintain its infrastructure, it is assigning itself to failure,” he said.

In 2013 Transnet cut back on its maintenance budget by approximately two thirds, and 12 years later spending has still not recovered to historic levels. The cumulative underspending on maintenance for the past 12 years is now approximately R33 billion.

Transnet says it needs R65 billion to restore the network to its previous condition, but Holley said it was hard to know if this was an accurate estimate, as it was done internally. He said it was known that the iron ore and manganese lines from the Northern Cape alone needed approximately R25 billion, but this represented only 7% of the total network.

The maintenance backlog on the full 12 000 km economically viable network is in Holley’s view probably closer to R200 billion.

Reason for optimism

Holley said he was optimistic about the future of South African rail for three reasons. The first was the size of the freight opportunity and the second was that rail reform has been structured in line with international best practice and the third is that an independent regulator is now in place. The full responsibility for South Africa’s railways has been moved to the Department of Transport, creating alignment between Transnet and the new national rail policy and its implementation. Already, there have been encouraging moves in adjusting steep tariffs that were initially demanded.

“I believe we will find solutions in the next 6-12 months because the country needs it and we have the right reform structure,” Holley said. “There are good knowledgeable rail people in Government in place who know what needs to be done.”

Budget Review: key takeouts:

• The Minister significantly reduced SA’s 2025 GDP growth rate from 1.9% in the March Budget Review to only 1.4%.
• Instead of VAT increases, the Minister withdrew the expansion of zero-rated items; increased the general fuel levy; and will propose another R20 billion in tax measures for 2026/2027.
• Proposed additional spending has been reduced by R52.5 billion over the medium term, mainly affecting education, health, defence, correctional services, and home affairs.
• Government debt-to-GDP is expected to peak in 2025/26 at 77.4% of GDP rather than 76.2% projected in March 2025.

A challenging short-term environment for long-term investors

Throughout most of 2025, global equity markets have been driven by short-term optimism — influenced by shifting political narratives and selective sector rallies. In such an environment, funds with a disciplined, long-term investment approach, such as the STANLIB Global Select Fund, may experience periods of relative underperformance.

Despite this, the fund remains well-positioned for sustainable long-term growth, offering investors a resilient, “all-weather” solution designed to deliver consistent outcomes across market cycles.

A globally diversified, style-agnostic approach

The STANLIB Global Select Fund is sub-managed by J.P. Morgan Asset Management (JPMAM). Drawing on JPMAM’s extensive global research network, the fund invests in 70 to 80 carefully selected stocks, each chosen for its ability to generate long-term value based on fundamental risk and return characteristics.

Since inception more than 15 years ago, the fund has demonstrated strong performance over the long term. While returns to end-August 2025 trailed the benchmark MSCI World Index Net TR (7.75% vs 15.79%), this reflects the fund’s disciplined positioning for capital protection and sustainable growth, rather than short-term momentum participation.

Global markets driven by a narrow band of stocks

Global equity markets have rallied strongly over the past six to eight months, despite ongoing policy uncertainty related to US elections, global trade, and geopolitical tensions. Much of this performance has been concentrated in the so-called “Magnificent 7” technology companies, supported by strong earnings and cash flow generation.

At the same time, European financials, particularly large banks such as Unicredit, have rebounded significantly in 2025, highlighting the importance of maintaining broad global diversification and access to high-quality research across regions and sectors.

Adjusting to shifting market dynamics

While market momentum remains positive, the potential for a general correction persists should valuations extend further. However, current conditions appear less exuberant than in 2021, with corporate fundamentals — including earnings growth and leverage levels — remaining broadly healthy.

In response to evolving market dynamics, the STANLIB Global Select Fund has undertaken measured portfolio rebalancing. Exposure to defensive holdings such as Coca-Cola and Johnson & Johnson has been reduced, while exposure to higher-quality cyclical industrials, including Trade Technologies and Eaton, has been increased following periods of attractive valuation.

The fund maintains a regionally neutral stance, focusing on valuation-driven opportunities rather than geographic allocation. Exposure has been increased to the US and Japan, with new positions initiated in China. Within the US, which represents approximately 60–70% of the benchmark, the fund holds selective positions in Meta, Microsoft, and Amazon, while avoiding overconcentration in any single group of stocks.

Positioning through opportunity and risk

The fund continues to consider structural themes such as artificial intelligence (AI), tariffs, inflation, interest rate trends, and commodity price movements. JPMAM has integrated AI tools to enhance research efficiency and data analysis while maintaining human oversight in investment decision-making.

Tariff-related impacts remain nuanced across sectors. The fund holds companies with varying degrees of exposure, including Volvo, TSMC, and Heineken, which differ in how they absorb or pass on tariff-related costs depending on their operational footprints.

The fund is not positioned specifically for interest rate cuts, but includes holdings such as first-tier banks that may benefit from potential easing cycles. While inflationary pressures are being closely monitored, current data does not suggest the onset of a broad market downturn.

The STANLIB Global Select Fund has no direct exposure to gold, offering diversification benefits for South African investors who may already hold commodity-heavy portfolios.

Staying disciplined in uncertain times

Amid global uncertainty and market concentration, the STANLIB Global Select Fund continues to apply a proven, three-decade investment process focused on research depth, valuation discipline, and capital preservation.

The fund’s consistent, style-agnostic approach seeks to capture long-term opportunities while managing downside risk. This disciplined process is designed to deliver stable performance across market environments, ensuring that investor portfolios remain positioned for the long term rather than driven by short-term sentiment.

In summary

In an era of heightened volatility and concentrated market leadership, the STANLIB Global Select Fund offers investors a diversified, fundamentally researched global portfolio managed by one of the world’s leading investment teams. Its long-term orientation, balanced risk management, and disciplined investment process provide investors with a robust solution for achieving sustainable capital growth across all market conditions.

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To find out more about the STANLIB Multi-Asset Cautious and Growth Funds, speak to your STANLIB Asset Management Investment Specialist.